LAHORE: The cost of collection of tax in Pakistan has sharply increased over time, jumping to Rs 25 billion in 2018 from Rs 16 billion in 2014, representing a 36 percent increase in cost during a short span of five years, said the Federal Board of Revenue (FBR) sources.
They said higher cost of collection (CoC) leads to the lower benefit of revenue collection. Nearly 80 percent of CoC is distributed in the form of wages of the tax collection staff, they added. According to sources, tax expenditures have been estimated to be about 1.2 trillion rupees, about 4 percent of GDP. There is an urgent need to reduce these for many reasons.
They said the tax administration model operates with outdated departmental manuals and outmoded information technology (IT) platform that relies on pirated systems and software. While the advance countries are using business intelligence (BI) and artificial intelligence (AI) tax solution technologies for compliance and reducing human interaction in tax filing and tax analysis, they stressed.
Meanwhile, tax experts have proposed simplifying taxes, reducing costs of excessive documentation, opening the economy for high growth and employment. Taxes too will then Increase, they said. Muhammad Nasir, a tax expert, said a tax effort that kills transactions is self-defeating. More transactions mean higher economic growth and employment, which in turn will generate sustainable streams of revenues.
He said transactions must be allowed to grow while collecting taxes. All taxes will create dead weight losses and market distortions. Good policy must seek to minimize these.
Naseem Faraz, another expert, said no one group should be seen to be bearing more taxes than others. This does not mean redistribution cannot be achieved through tax policy, but it must have an explicit and well thought out plan.
Since taxes distort prices and market activity, he stressed that there must be certainty in policy for people to build businesses. Frequent and arbitrary taxes are harmful for growth.
Copyright Business Recorder, 2020
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